Kraft shareholders to vote on Heinz deal Wednesday

Jobs growth

HARRY FISHER, MORNING CALL FILE PHOTO

The fate of more than 400 workers at Kraft Foods Group’s plant in Upper Macungie Township remains uncertain, a little more than three months after H.J. Heinz Co. announced its to buy the Northfield, Ill.-based macaroni--cheese maker.

The fate of more than 400 workers at Kraft Foods Group’s plant in Upper Macungie Township remains uncertain, a little more than three months after H.J. Heinz Co. announced its to buy the Northfield, Ill.-based macaroni--cheese maker. (HARRY FISHER, MORNING CALL FILE PHOTO)

That hazy outlook should get clearer soon, with Kraft shareholders scheduled to vote on the deal Wednesday morning. Regulatory filings indicate the companies expect the merger to close soon after the vote, though a Kraft spokeswoman said in an email there's no specific time frame for when the future of the Lehigh Valley plant will be decided.

But Brazilian investment firm 3G Capital, which engineered the deal with billionaire investor Warren Buffett's Berkshire Hathaway, has a reputation for deep cost-cutting measures and is expected to get to work quickly.

At Heinz, which 3G and Berkshire Hathaway bought in 2013, more than 7,000 jobs — about 20 percent of the workforce — were eliminated in the 18 months after it was acquired by the two companies, the Chicago Tribune reported.

The two companies have not said how many jobs would be eliminated as part of the merger, which proposes a new corporate name: Kraft Heinz Co. The new company, which will be one of the largest food and beverage companies in the world, will own Kraft, Heinz, Oscar Mayer, Ore-Ida and a host of other well-known brands.

Locally, Upper Macungie officials said they haven't had any recent contact with Kraft.

"Facility-wise, we've heard nothing about what they intend to do with the plant," Township Manager Daniel Olpere said. "I wouldn't say we're in the dark but, as far as we know, nothing is going to change."

Kraft has had a plant in Lehigh County since 1972, the company's only Pennsylvania manufacturing facility. The company also leases a distribution center in Bethlehem Township that is managed by outside logistics services companies: DSC Logistics manages the shelf-stable or "dry" products there, and U.S. Cold Storage manages the refrigerated products.

The 1 million-square-foot plant at 7352 Industrial Blvd. in Upper Macungie makes a variety of products, including condiments such as A.1. Steak Sauce and Grey Poupon mustard. It also makes on-demand coffee products for Keurig and Tassimo products. Of the plant's more than 400 employees, about 250 work in the coffee on-demand business.

At one time the plant made Kraft natural cheese products. But the company stopped cheese production in Upper Macungie during 2012.

Lehigh University business professor Dale Falcinelli said the Upper Macungie plant's coffee production could insulate it from layoffs, since Heinz does not sell coffee.

After the deal closes, Falcinelli expects the company to consolidate, targeting areas that overlap.

"That market is a niche market for the type of coffee products that they manufacture and sell," Falcinelli said. "I think that Macungie unit will remain a business unit of Kraft."

Neil Stern, a senior partner at Chicago retail consulting firm McMillan Doolittle, said in an email he doesn't expect to see jobs lost at the manufacturing level, particularly in a business without overlap like coffee production.

Stern said jobs cuts are more likely at the corporate level, in overlapping areas such as sales, marketing and accounting.

But, he said, "3G does have a reputation for cost cutting and certainly the objective of the merger is to drive greater synergies and obtain cost savings."

Kraft and Heinz have already started making some moves in anticipation of the deal's being approved.

On Monday, the two companies announced that many of Kraft's top executives, such as Chief Financial Officer James Kehoe, will leave soon after it combines with Heinz. Many of those executives are set to take home special payments tied to their work on the merger. For example, Kehoe would get $500,000 within 10 days of the deal's closing, according to regulatory filings in late June.

When the deal closes, Heinz's owners will own 51 percent of the new company, with Kraft shareholders holding the other 49 percent.